Have no fear! Your comprehensive guide to bitcoin wallets is here! While that might be a mouthful, we’ve got the simple low down on every type of bitcoin wallet you need to store your funds.
To anyone that’s been paying attention to financial markets since 2017 (or even before that, for you deep tech geek lot) you’ve probably heard a little something about the new digital gold, Bitcoin. You may not really understand how it works, you may not own any, but you have heard of it. Bitcoin made serious headlines in 2017 when prices soared and made millionaires overnight. While the market hasn’t been that dynamic since it’s still gaining popularity and accessibility at a breakneck pace.
What makes bitcoin so incredibly alluring to so many traders these days isn’t necessarily its value- but rather it’s principals. Bitcoin is a global currency that can be used to purchase goods and services, used to buy and sell bitcoin itself. With the world losing faith in good old fashioned fiat, bitcoin provides an enticing alternative.
Thanks to trade wars, the impending break up of the European Union, and the threat of WWIII nipping at our heels, many people are looking for a type of currency that’s largely anonymous – thanks to clever bitcoin wallet storage like renowned Bitvavo, and fully decentralized. Meaning no conversion fees and no governmental oversight or influence. For many of these types of people, there is bitcoin.
How Bitcoin Works: A Crash Course
Bitcoin isn’t really like your regular currency at all. Meaning, there’s no paper money, no actual “coins”. You can’t hold it in your hand or pop it in your bifold. Bitcoin has value because of the idea that it has value, a bit of faith if you will. For most types of fiat currency, this idea of worth really isn’t all that different. As modern money is rarely worth the paper it’s printed on.
With bitcoin, instead of trading notes and coins, users instead trade large strings of letters and numbers, known as “wallet keys”. These keys basically work similarly to an International Banking Number (IBAN). Which is a key that you can give to people to give you money, but not one that gives them the ability to fully access your account.
These bitcoin wallet keys allow people to trade bitcoin values between wallets. Wallet holders themselves have a personal key, which allows them access to their accounts. Personal keys are more like your online banking login info. These allow users to jump into their bitcoin wallets, see transaction histories, account details, and move around bitcoin.
Anytime bitcoin is transacted, a receipt of that transaction is then stored inside the blockchain. Blockchain is a publically accessible, immutable ledger. Something that anyone can look at, but no one can change. These transactions are placed into the blockchain by “miners”, people who run complicated software to solve even more complicated mathematical algorithms as a proof-of-work system. The miners are then rewarded for their efforts with amounts of brand new bitcoin that come from what we would equate to as the federal reserve of this cryptocurrency.
This reserve of bitcoins was accounted for during the coin’s creation. Only 21 million bitcoins exist. No more can ever be created. As miners mine, these coins are slowly released into the pool, ready for trade. This creates a system of “artificial scarcity” partially creating bitcoin’s value. This also means that bitcoin value cannot be easily tampered with or artificially inflated – unlike fiat.
So, there you have it. That’s basically how bitcoin works. You’re welcome.
Bitcoin Wallets: Why They Matter
So you might be asking yourself at this point “Why does it matter what type of wallet I have? As long as no one has my personal key, the whole system is safe and anonymous.” Right? Well, no. Not right.
There are five main types of bitcoin wallets. Each with their own unique pros and cons. Each wallet can be categorized as being either “hot” or “cold” storage. Hot storage means that the bitcoin wallet is directly connected to the internet, while cold storage refers to wallets that are offline.
1. Hardware Bitcoin Wallets
These wallets are just systems of storing a user’s private keys on an external device. Like a USB stick or disk (hey- it was 2009, disk drives were still a thing). These wallets are generally considered cold storage. Downfall? Lose the device, lose your wallet.
2. Software Bitcoin Wallets
Or sometimes called “Desktop Wallets” these storage devices can be either hot or cold, depending on whether the user connects them to the internet or not. These wallets are downloaded directly onto a user’s computer. Without backups, if anything happens to your computer, your coins are lost forever.
3. Mobile Bitcoin Wallets
This wallet is stored directly on your mobile phone and is a type of hot storage. These wallets are incredibly popular. They usually work via an app and give you instant access to your coins anytime you log in. As they’re always online, these wallets are much more susceptible to hacks.
4. Online Bitcoin Wallet
Typically used by most trading platforms, these types of wallets work off of cloud storage. They can be accessed from any device by using your private key. Should you choose an online wallet, we strongly suggest you choose one through your bitcoin trading platform, as these guys have top security.
5. Paper Bitcoin Wallets
Paper wallets are literally just a user’s personal key that’s written down. Often used as a type of backup, be sure and store these wallets in a safe space, unless you want to go treasure hunting.
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Source: Coinfo mania